Posted: Wednesday 9 May 2012
By John Lunn
Most consumers are blissfully unaware of the existence of the Consumer Credit Act 1974 (“CCA”) and the myriad of regulations and instruments made under it. Although the CCA has been in place since 1974, the current CCA regime has developed over the last 25 to 30 years or so, with the momentum gathering apace from 2005 onwards. While it has its many detractors, the current regime generally achieves what it sets out to do, principally:
Most of this is achieved through a highly developed and complex regulatory system. While this has the tendency to tie some lenders in knots, there is at least the semblance of legal certainty. This legal certainty allows lenders to work with what they’ve got, and to develop their products and processes within that framework.
This is all about to change, with the potential cumulative effect of throwing legal certainty out of the window!
The UK government, though HM Treasury, are consulting on a proposal to move responsibility for the CCA regime across from the Office of Fair Trading (“OFT”) to the newly (to be) created Financial Conduct Authority (“FCA”) which will soon replace the consumer protection elements of the Financial Services Authority (“FSA”). A key element of the proposal is to effectively transform the current regulatory system that is the CCA regime, and the legal certainty that goes with it, into an FSA style “rulebook” comprised of high level rules and more general guidance to go with it. There will be some place for a re-write of some of the OFT’s guidance on the current regime, and for industry codes of conduct, but legal certainty will, I fear, be conspicuous by its absence.
Bruce Wood, our asset and invoice finance expert, has published a critique of the proposal as it currently stands, and this is a cracking good read. I shall leave it to Bruce to expand on some of the obvious faults and some unforeseen consequences of the proposal in more detail.
Thinking much further down the line, I have some concerns that compliance with the FCA’s new consumer credit rulebook, its associated guidance, any approved industry codes and the skeleton of the CCA legislation that remains might not be enough to protect a lender from punishment by the FCA, if all of this does not produce satisfactory “consumer outcomes”. Witness the current payment protection insurance debacle, where lenders who sold PPI entirely in compliance with the FSA’s own conduct of business rulebook as then in force, are now being hammered by the FSA and the Financial Ombudsman Service (“FoS”) for a failure to produce those satisfactory consumer outcomes. Ultimately the conduct of the PPI sellers is being judged against the FSA’s principles for business, including “treating customers fairly” and those improved outcomes, and I am in no way endorsing the mis-selling of PPI in any way. However, the British Bankers’ Association’s concerns in bringing its judicial review of the FoS and FSA’s approach to PPI sales, and the precedent that it may set, may prove to have been well-founded, even though the judicial review itself was doomed to failure.
Will consumers notice the difference? Well probably not, given their general ignorance of the current CCA regime. Their ability to get a refund from their credit card company for shoddy goods or cancelled holidays is likely to remain unaffected by all of this. Ultimately, whatever the new consumer credit regime looks like, it will have to meet the minimum standards for consumer protection as set by the European Union via the Consumer Credit Directive and all that.